In 2000, Bashar al-Assad succeeded his father and, in vibrant speeches, promised a new wave of reforms towards political liberalisation and a multiparty system. In 2011, people are still waiting for the democratisation, while the Ba’ath party is still the only party allowed by the constitution to rule the country (article 8).

Since mid-March, Syrian demonstrators have continued to take to the streets at a level of intensity unseen in other Arab revolutions. While in Tunisia and Egypt the number of demonstrations simultaneously taking place rarely exceeded fifteen, in Syria the average is said to be over fifty[1]. The protesters continuously challenged a military crackdown which, despite the lifting of the emergency law in April, has worsened and caused the death of over 3,500 civilians.[2]

There have been numerous explanations to account for the sudden and unexpected awakening of the Syrian people living under an Alawite-dominated military dictatorship for the past forty years.

The dynamics of the Arab Spring – namely examples of regime change in Tunisia and Egypt – have played a great role in triggering the uprising. The strong sense of belonging to a single Arab nation allowed for the Syrian people to identify with those struggles. The victories of these Arab brothers broke the barrier of fear. People realised that they did not have to resign themselves to limiting their political aspirations to a choice: accepting to live under a nationalist military dictatorship or asking for a US-led military intervention, which would lead to a western-dominated government on the model of their Iraqi neighbours. The examples of Tunisia and Egypt showed Syrians that there exists an alternative to these scenarios and that a grassroots peaceful contestation can radically transform a political situation frozen for years. However, the economic explanations of the Syrian uprising, and more specifically, the consequences of twenty-five years of the government’s economic policy have been constantly underestimated in the analyses.

It is clear that the Syrian wave of protests cannot be understood out of the context of the events in other Arab countries. Nonetheless, the ‘Arab Spring’ was only a spark. Internal sociological and economic issues are at the root of the Syrian revolutionary dynamic. Some of these issues are shared with other Arab countries while others are specific to Syria, originating in five decades of history of the Ba’athist regime. To understand the dynamics of the Syrian revolution, the protesters’ grievances, and possible further developments of the uprising, it is necessary to shed light on the relationships between the different components of Syrian society and the Ba’athist regime since its seizure of power in 1963. It is also important to underline the alterations that these relationships have undergone, first, with Hafez al-Assad’s coup in 1970, and then with the implementation of the economic opening in the mid-1980s, which has been further enacted after Bashar al-Assad’s assumption of power in 2000.

Peasants and Workers: Traditional Support of the Baath Party

After independence in 1946, Syria was dominated by a bourgeois class for two decades. This class not only controlled Syria’s economy, but they also played a major role in Syrian politics. In this respect, the year 1963 was a dramatic turning point in Syrian history, when the Ba’athist seizure of power put an end to the rule of the bourgeoisie. The Ba’ath party implemented large-scale nationalisations and land reforms, severely weakening the business community. Urban and agricultural workers were the major beneficiaries of these economic reforms and provided the regime with widespread support[3]. This led to a major influx of these groups into state institutions and popular organisation, many becoming civil servants. They have remained until recently the major social base of the regime[4].

Hafez al-Assad seized power in 1970 and terminated this Ba’athist ‘radical phase’. Conducting a policy of small-scale economic liberalisation (the ‘Corrective Movement’), he implemented a slow move towards a mixed economy. This enabled a moderate revival of the private sector, setting the ground for new social and political alliances. Without threatening the support of the working classes, this limited economic opening permitted the resurgence of middle-class merchant families from whom Hafez al-Assad obtained gratitude and allegiance.

This new alliance strengthened over time thanks to the development of close relationships between high-ranking officials and some entrepreneurs. These relationships became so important that in 1982 Elisabeth Picard described the regime as a ‘military-mercantile’ complex[5] – an alliance between an Alawite-dominated security apparatus (Army and Intelligence services) and some parts of the business community. The appeasement of the bourgeoisie and the co-optation of the representatives of the middle merchants and of the top layer of the commercial bourgeoisie, have lain at the core of Hafez’s strategy of consolidating the regime’s grip over the country. Some entrepreneurs benefitted from these relationships, managing by means of corruption to appropriate contracts of state-commissioned infrastructure work, secure special exemptions, monopolies and quasi-monopolies, and to build tremendous wealth. Nonetheless, some mistrust has remained over the years. As the Ba’athist socialist anti-bourgeois ideology brandished by the regime has been unable to legitimise an alliance with the private sector, these relationships have remained barely visible. They were taking place behind the scene, in informal settings and often took the shape of bribery, corruption and cronyism.

The dramatic importance of the support of the business community in times of political instability has been highlighted during the severe threat faced by Ba’athist rule during the late 1970s and early 1980s. The regime’s survival was critically endangered by a virtually nationwide contestation led by Islamist forces and left-wing parties. When the Aleppo merchant community called for a nationwide strike in 1980, serious doubts were raised about the regime’s capacity to survive. At this moment, the Damascus merchants directly took sides with the regime and decided to keep their shops open[6]. Despite the fact that this crisis was only overcome in 1982 with a military intervention and the shelling of Hama, killing over 20,000 people, the Damascus merchants’ spectacular support of the Ba’athist state in 1980 is said to have prevented the regime from collapsing. Salwa Ismail reports that “to this day, many local observers believe that the Damascene merchants could have brought down the regime but chose not to do so.”[7] The friendship between President Hafez al-Assad and the president of the Damascus Chamber of Commerce al-Sallah[8] symbolised the alliance between the Damascus merchants and the regime.

The relationships Hafez al-Assad developed between his regime and different parts of society strengthened his grip on the country and gave Syria its first period of stability since independence.He managed to put an end to the period of recurrent military coup and instability by simultaneously maintaining the alliance between the Ba’ath party and the working classes, and developing a partnership between the Alawite-dominated security apparatus (army, police and intelligence services) and some sections of the bourgeoisie. Support from the working classes was secured through the display of a populist rhetoric and a populist ideology. More specifically, the economic policy maintained the high level of the welfare state, providing jobs in an already outnumbered administration plagued with low-productivity issues. This welfare state was also articulated with the completion of major infrastructural projects aimed at developing remote and agricultural areas[9]. This economic policy pleased both low-income urban and agricultural workers[10]. On the other hand, support of parts of the bourgeoisie had been obtained by the very limited economic liberalisation of the ‘Corrective Movement,’ and maintained via hidden relationships and corrupt links between high ranking officials and the Syrian private sector.

This policy was funded by the income collected from oil production. The economic crisis that hit the country in the mid-1980s strongly challenged this political model.

The mid-1980s Economic Crisis: the Impossibility to Maintain the Economic and Political Model

The collapse of oil prices in the 1980s sharply reduced state incomes and threatened the durability of the economic policy. The decrease in oil incomes led to a serious crisis. This decrease revealed the long-term imbalances in the Syrian macro-economic framework by a balance of payment crisis. This crisis was followed by a currency crisis: the intensification of currency smuggling and the depreciation of the Syrian pound on the black market. Even though the drop in oil prices was temporary, the forecasted depletion of national oil reserves made the decrease in oil incomes inevitable in the long term. As predicted, production peaked in the mid-1990s, at 610,000 barrels a year. Steadily decreasing since, the production in 2008 only reached 380,000 barrels.[11] The reduction of oil state incomes is a new reality with which state officials have had to cope. The high level of the welfare state has become more and more difficult to maintain. It is all the more problematic as the allegiance of working classes to the regime has relied to a large extent on this welfare state. This has in turn led to the making of difficult political decisions.

To overcome the economic crisis, but also to rationalise political and social alliances, the government inaugurated a new wave of economic opening: the ‘second infitah’. The government’s aim was to substitute working class allegiance, whose degree of support was most likely to decrease, for the massive co-optation of broader parts of the bourgeoisie. The government would make this substitution through the implementation of a more business-friendly environment. Hafez al-Assad inaugurated this change in policy. Law n°10 in 1991 has been his main achievement. The law loosened the legal framework pertaining to foreign investments and guaranteed five-years of tax and customs fees exemptions. This economic opening has been further enacted by Bashar al-Assad, whose aim (as described in the 10th five-year plan of 2005) has been to achieve an economic transition towards a ‘social free-market economy.’

Bashar al-Assad has subsequently carried out a modernisation of the business-legal framework and continued the process of economic opening begun by his father. The law n°28 of 2001 and the decree n°43 of 2005 ended state monopoly over the banking and the insurance systems respectively. On the other hand, a new fiscal law (2006), a new trade code (2007) and a new law pertaining to corporations transformed the legal framework concerning business. Replacing the Law n°10 of 1991, two decrees, n°8 and n°9, were issued in 2007, easing the procedures for Foreign Direct Investments[12]. On the top of that the decree n°55 (2006) created a stock market[13], which finally opened in February 2009[14].

Although this decision to implement economic liberalisation was highly rational on the paper, it has also been very risky. Liberalisation of the economy implies a reduction of the state’s role in the economy, a reduction in the number of civil servants and a decrease in state subsidies. The working classes were then more likely to be threatened by this new economic policy, and the economic liberalisation was likely to accelerate their forecasted alienation.

The Infitah Fuelled Low Classes’ Resentment.

Liberalisation of prices and cuts in subsidies in recent years caused inflation soar to 15% in 2008. The drastic reduction in oil subsidies made fuel oil prices increase by 42% between December 2008 and September 2010. Moreover, the government announced in June 2010 that energy prices will continue to increase until 2015[15]. The liberalisation of the prices of animal feed and pesticides added to the consecutive years of severe drought since 2007 have increased the resentment of agricultural classes.

In addition to the liberalisation of prices, and despite a rhetoric continuing to emphasise the necessary development of remote regions, Syrian agricultural areas have been neglected. As the new economic policy has given priority to the attraction of foreign investments[16] in an attempt to restore macro-economic imbalances, boost economic activity and shift the main source of the state’s income from oil revenues to taxation,[17] most of the government’s effort has been concentrated on the development of ‘useful Syria.’ This represents possible areas of interest to investors, comprising Damascus and its vicinity, Aleppo, and to a lesser extent the coastal region. As a consequence, the agricultural regions (such as Deraa, Deir Ez-Zor, Raqqa and Qamishly) have been neglected and have not benefitted from the recent economic growth. This contradiction between word and deed has been felt as a breech in the ‘social contract’: the state providing welfare and jobs and guaranteeing cheap basic goods, in exchange for allegiance.

Government responses to the uprising have shown that state officials are well aware of the economic and social factors behind social resentment. One of the government’s first measures towards blocking the 2011 uprising was to put a halt to economic reform. They stemmed plans to cut subsidies and pledged to raise wages and create new jobs in the public sector[18]. At the very beginning of the protest, the 3rd of April 2011, in an attempt to curb the discontent of agricultural workers, Bashar al-Assad replaced Prime Minister Naji-al-Otri with Adel Safar, who was the minister of Agriculture and Agrarian Reforms. This was potentially an attempt to express a message to agricultural workers that their difficulties were understood, and moreover, that their concerns were still at the centre of the government policy. More recently, the decision to increase Syria’s 2012 budget by 58%[19] is also very telling. It is supposed to be the proof of the government’s determination to restore some of the elements of the welfare state. However, it is the government’s economic policy of the past twenty-five years which has incrementally dismantled this welfare state. The vote of the next year’s budget is a doomed-to-fail attempt to repair a ‘social contract’ which has already fallen apart

What is even more alarming for the regime is that the economic reforms never had the expected effects on the bourgeoisie. The example of 1980 shows how important the support of the bourgeois community can be in times of great uncertainties of the regime’s survival. The economic reforms were designed to appeal to this class by increasing business opportunities. In this respect, however, they largely failed.

The Infitah: Failure to Secure an Unanimous Allegiance from the Business Community

The bourgeoisie has benefited by and large from the economic opening. However, many of the difficulties that prevented them from unanimous allegiance have remained. The regime’s general mistrust of the bourgeoisie, rooted in its anti-bourgeois socialist Ba’athist ideology, has remained salient. This is one of the factors explaining the regime’s reluctance to publicly associate the business community with power. In addition, bureaucratic mazes and legal uncertainty have remained major inconveniences for setting up businesses. However what has been most problematic is the deterioration of relationships between well-established entrepreneurs and sons of regime officials over the last decade. With the steady decrease of available public funds, the sons of regime officials, the ‘awlad al-sultah’, have increasingly taken the opportunity of the economic opening to enter the private market, instead of beginning a career in the army or the administration[20]. Mustafa Tlass, Defense minister from 1972 to 2002, whose son Firas is at the head of a commercial empire[21], paved the way for this process. Benefitting from extremely close relations with centres of power, they have made the economic competition unfair and have threatened well-established businesses. The most emblematic example has been Rami Makhlouf, the infamous maternal cousin of Bashar al-Assad. He has intensively used his extreme closeness to power to take over lucrative businesses by means of corruption and has used state apparatuses for his own private interests. As Salwa Ismail states in 2010, the military-mercantile complex began to crack when the awlad al-sultah tried to muscle in on established merchants’ businesses.”[22]

In the context of the current nationwide uprising, most of the business community has so far remained part of the Syrian silent majority. Without supporting the government, they have favoured political stability, unsure of which side to take. A tiny minority, which maintains a strong, corrupt relationship with high-ranking officials, has decided to support the regime. For instance, President of the Aleppo Chamber of Commerce, Al-Shihabi, expressed his concerns about the uprising and his fears of a possible return to a highly centralised, socialist economic model in the event of the current President’s downfall.[23] However, others have aligned themselves with the opposition. The brothers Ali and Wassam Sanqar, sons of Omar Sanqar, a prominent figure of the Damascus business community, have joined the opposition and funded the opposition meeting of the May 31st in Antalya, Turkey.[24]Ryad al-Seif, representative of Adidas in Syria, has been appointed vice-president of the Syrian Transitional National Council, created the 29th August 2011.

Even though the majority of entrepreneurs have remained unsure about which side to take, most do not feel that they are part of the regime. The worse the economy becomes, the more likely it is that they will align themselves with the opposition, or at least be tempted to transfer their assets abroad. The political situation has already been very harmful to the business environment, with many the planned investments cancelled and an expectation of dark days ahead. Following the diplomatic crisis that occurred concerning Al-Jazeera’s footage of the uprising, the State of Qatar, which was poised to become the most important investor in the country[25], cancelled all its investment plans.[26]

The potential collapse of the Syrian pound may further influence the outcome of the current political crisis. This possibility will play a decisive role in the decisions that entrepreneurs will take in the coming weeks. A negative balance of payments reduces the Central Bank’s currency reserves and a depletion of these reserves would lead to the collapse of the national currency. Moreover, Syria’s business activities are based on trading. Numerous businessmen have built their wealth in import-export. The currency rate is thus a key issue for them and a collapse of the pound, in addition to causing a severe devaluation of all private assets held in this currency, will put an end to most of their commercial activities.

Since oil accounts for two thirds of Syrian exports[27], and as up to 90% of Syrian oil production was previously exported to EU countries[28], the EU’s ban on oil imports, decided the 2nd of September, has made an imminent collapse of the Syrian Pound a contingency to be taken even more seriously. According to state officials, the central bank reserves of foreign currency are strong, estimated at over $18 billion[29]. However due to opaque accounting practices, there is no possibility to verify this figure. Moreover, restrictions on currency exchange decided on August 15th[30], and government’s recent decision to ban the import of a long list of expensive produce,[31] suggest the possibility of increasing tensions on foreign exchange reserves. It has also been reported that Bashar’s uncle, Rifaat al-Assad, is selling off his properties abroad.[32] This could indicate a need for liquid assets or could be seen as a move aimed at sustaining the Syrian pound by repatriating assets into the country.

On the one hand, Syrian entrepreneurs would be economically threatened by the collapse of the national currency, but on the other, they are threatened by the government’s attempts to prevent this collapse. The ban on importation led to outraged protest from the commercial bourgeoisie, to the extent that the government decided on October 10th to lift the three week-old ban, showing that state officials have neither room to manoeuvre, nor a coherent, long-term economic strategy.[33]

A loss of confidence in their currency could make Syrian entrepreneurs transfer their assets abroad. This has been an on-going process from the very beginning of the political crisis. According to the Byblos Bank, based in Beirut, deposits in Syrian accounts held by Lebanese banks dropped to about 24% by the end of April[34]. This transfer of assets out of Syria is the consequence of a loss of confidence in the currency, but will hasten the collapse of this currency. A possible ‘snow-ball effect’ should then not be excluded. As soon as a critical amount of Syrian entrepreneurs have ‘crossed the Rubicon’ and have defied state retaliation by selling their businesses and transferring their capital into a foreign currency, the majority is likely to follow, so as not to be the only ones to have lost everything.

This collapse thus seems very likely. Nevertheless, predictions are hard to make. A lot will depend on the amount of external aid the country will receive. It has been said that Iran has poured between one and four billion dollars into the Syrian economy since April.[35] In other words, the possibility of a collapse of the Syrian economy also depends upon Iran’s willingness and capacity to fund the delegitimised Assad regime and the crumbling Syrian economy.

Conclusions

In an attempt at strengthening the regime and at ‘rationalising’ the social basis of the regime, the economic policy which has been implemented for the past two decades has aimed at co-opting the Syrian bourgeoisie. The failure of this attempt will be even more obvious when businessmen realise that they have more to lose by remaining undecided about what side they have taken, rather than actively supporting and funding the voices demanding a regime change. The longer this situation lasts, the worse the economic situation of Syrian entrepreneurs is likely to become. It is thus reasonable to think that they could quickly come to the conclusion that hastening Assad’s downfall is the fastest way to return to political and economic stability. This moment may happen very soon.

[19] The Syria Report, 26/09/2011, “Syria’s Budget to Increase by 58% in 2012”.

[20] This process has been studied by Volker Perthes in different publications, such as The Political Economy under Syria, p.114 and “A Look at Syria’s Upper Class, p.34.

[21] “MAS is a major importer offood products and is also active in trading and manufacturing in food and building materials. MAS recently ventured in real estate development. It is also setting-up a cement manufacturing plant in Aleppo in joint-venture with Lafarge SA, one of the largest building materials company in the world.”

Source: The Syria Report, Mas Economic Group Company profile, 3 March 2011.